April 1990 /n ternotionol Edition

Memo to Managers: 2
Chairman 's Messoge
from John Akers

Unveiling a Quality \Vay of Life: 3

Jock Kuehler on IBM's Pion to Virtual/y Eliminote Defects

Morale Takes a U-Turn in Asia/South Pacific: . 8

Bruce Cloflin Tells How on Actíon Pion Worked

How You Should Manage in a Changing Corporation: 9

Conversotíon with Peter Drucker

The Best in Our Management Skills Is Required Today: 12

lntervíew with Walt Burdíck on Stresses on the Company
and Other Topícs
• Full Employment: How IBM Maintains lt 15

Departments
• IBM Customer Quotes 16
• IBM Management Quotes 18
• Letters to the Editor 19
..
Num.: 9200 Val e n c i a Pl a nt
De (Dpto.): Engineering Val.Sp a in

Fecha: 18 Mayo 1990

Asunto: Mgmt Report Abril 1990

A: Funcion Ing enieria

Acabo de recibir esta nueva publicación que por su contenido y

actualidad de los temas, considero muy interesante su lectura por
todos los empleados de la Función, por lo que os adjunto fotocopia
de la misma.

El tema central, reflejado en el memorandum firmado por J. Akers y

el artículo de J. Kuehler, es la estrategia Market Driven Quality
y la eliminación de defectos mediante la técnica "6 SIGMA".

Como os anuncié, en los próximos meses recibireis la formación

necesaria en esta nueva técnica. Actualmente estamos iniciando su
aplicación en los procesos directos mediante unos proyectos
pilotos que estarán liderados por la Función.
Espero que esta lectura os resulte interesante e instructiva y os
recomiendo el debate en reunión de Departamento para completar un
total y común entendimiento de esta estrategia clave para nuestro
futuro así como de otros temas incluidos en la misma.

Reyes

E.R. :nm 1
 2 April J9y()
-- - - - - - - - -- - - - -

--t Striving_ for

.:;1:~ ~ Perfect1on
~->'t .~-4"¡ n this issue of JB1W 1\1anagement Report, you will read
I about the company's renewed emphasis on market-
driven quality. We are not just revisiting our commitment to
world-class quality. We are raising the bár.·
This is an all-out, international efforr. Our aim: to virtually
eliminare defects in everything we do in the 1990s. It's fair
to say that we are, indeed, striving for perfection.
As Jack Kuehler explains in the article beginning on the
opposite page, all IBM managers will be involved in a pro-
gram of incremental and sustained improvements leading to
a goal, called Six Sigma, of a virtually defect-free environ-
ment in everything we do by 1994.
Many IBMers still believe, mistakenly, that quality is the
sale concern of_our development and manufacturing com-
munities . It is not. It applies to everyone . The Six Sigma
standard transcends the produce line and muse permeate our
entire enterprise.
As managers, we are responsible for helping our people
understand that they are part of this historie company effort,
whether they are in administrative, marketing, service, secre-
taria! or staff positions.
We muse, as a management team, reaffirm the excellence
for which the IBM company has long been known; we must
restare quality in everything ~ve do; and we must success-
fully complete the transformation to nurket-driven quality.
 3 fll.l f .\ h 111<1¡!. e 111 e 111 Ncpo ,1
t the comp:rn y's world-
Unveiling a A wide Se ni o r Ma nageme nt
Mee ting in J:inu:1r.- . líl\ l P,l', ic!e nt
QuaHty Jack Kuehle r se t a n o bjec ti,·e fo r
lBM to im prove qua lity o ve r che
Way of Life next fo u r years, in e ve ryt h in g it
d oes. by a fa cto r of so rne 20 .000 .
Tha t's rig ht, qua li ty tha t is 20 .000
times be tter, in ma ny case s , tha n
Senior managers it is today.
A second :.1nd coro ll árv objec-
briefed on plan tive is iO fu n iii.: r im ¡,ro, ·e rh e
to virtually co mpa ny 's cyde times . This
includes b o th che d esig n-develop-
eliminate defects. m e nt cycles, a nd the time it takes
to fulfill a c usto m e r o rde r. (Tota l
cycle tim e . as che c usto me r sees
it, is s hown on page 5.)
By 1994 , che intent is tha t every
lBtv[ produc e a nd service a nd
every IBM interna! process-fro m
b uilding the most
complex hig h-end
com p uter syste m
to tabulating a
custom e r's
b ill- will have no
mo re th a n 3.4
d e fe cts pe r mi ll io n
units.
The ne w qu :1 liry
Jack Ku ebler improve me nt pro-
gra m , ca lled Six
Sigma, w ill affect every lBM m a n-
age r in the compa ny worldw ide.
as we ll as, subsequ e ntly, every
e m p loyee a nd e ve ry ve ndo r a nd
IB:vl business p a rtne r. It is a
fr:1mework for ac h ie ving che
compa n y's overrid ing goa l of
The aim in IBM is to hove no more than 3.4
defects per million units in virtually every
interna! process.
m a rket-drin: n c¡ua lity.
"By im¡, roY ing 4 u:.1l ity ." s:iys
Kue h kr . .. ,w·
etn hd p s h rin k
cyck time s . AncJ ,,·i1h s l10n1.:r,
s impkr cyc les. ,,·e g1.:t h1.:tt e r
q u:.1 li1y."
"Our airn. " s:1ys IB \ 1 Ch:1 irm:1n
John Akers, "is to m:1ke eve ry
,-\pn·II 990
IR\! offering pe rfec t in the eyes o f
che custom e r. and to ri d lBM of
e v e1Y List ,T q ige <·,: ··: ., · ,-: :1 :; , :
efficie nc,·. ··
Accord ing to Kue h le r, chis is
no thing less th an 113,\l's he ritage
of exce ll ~nce in e , ·eryth ing it
does---o ne of 18\l's Basic Bel iefs .
"\Y/e a nd che peo ple be fore us,''
he says, "b u ilt :1 g re at co mpa ny
o n th e pursu it of exce ll e ncc . !3 ut
rhe h:1 rd fa ct is ,n·, .: :·,,)t do in g
w e ll e nou g h . The q uality a nd rc -
s ponsive ness o f o ur co mpe titors
get be tter and bettcr. And _,_.e've
got to .do m o re than keep p ace .
\Y/e 've got to s urp:1:,s che m . ··
Four- Year Objective
To d o th:it. says Ku e hler. 113.\1 h as
e mba rked on :i ¡xogram o f
incre m e ntal a nd sust:.1 ined im-
prove ments le:.1ding to a 10 times
re duction in d efects by next yea r,
10 ti mes m o re than tha t h y 1993,
and Six Sig m a , o r 3.4 d efects pe r
milli o n u n its . by 1994. He c:i lls it
"e xce lle nce in exec utio n . ··
For m a ny ye ars. conve nt ion:i l
bus iness wi sd o m hc ki :h:1c 99
p e rce nt d efect-free w as good
e n o ug h . Pus hing fo r be tte r q ua li ty
tha n th:it w ou ld drive u p coses.
But 99 p e rcent defect-free quality
e qu a ls 10,000 de fec ts per m ill io n
units. Still sou ncl good ? Loo k a t
wh a t that wou ld m ea n tra ns la te d
int o everyd:.1 y life in the Cnite d
Sta tes:
u 20,000 p ieces of ma il lose e ve rv
ho ur. ·
u 5.000 in corre ct su rg ic:i l ¡,roce-
durcs e ,·ery ,,·eek.
= .200 .000 f:tulty p lurma ceu tictl
pre scri¡,1 ions : 1 ,·e:1r.
O And in IB\1. JO cJefects in L·,·erv
1.000 so lc.kr joi lll s ()11 :1 comput e;
mo1he rl )t)ard .
Cusco mers tod:1y ex rx·ct :1nd
cJe nun d hett e r c¡u:tli1y clun l)l)
percent. ··Th e only accept :tlile
standard. ·· s:1ys Ku t: hlt:r, "is
virtu:dly zero <.kkcts . Cu:,10111<.:rs
in our in<luslr. \\'ill not tokr:11e
less chan excepcional quali1 y.
 -1 111.\f _\/(1 11ag et11<'' 11 R<'po,1 Apn"l 1990

They don't have ro. If they don 't

get it from us, thev will get it from
our competitors

Quality Means Growth

"\Y/e must significantly improve

our quality if we are going to
grow our business," says IBM
:hairman of World Trade Mike
<\rmstrong.
"Quality sells, ar.J we need to
mderstand quality as customers
;ee it. This means not only the
·eliability of our products, but the
1ccuracy of our bilis, the answer-
ng of our telephones and the
ttitude of everyone in the IBM
:ompany.
"Quality can never be as-
umed," Armstrong continues. "It's can use it to tell if your quality is lus (which you'll never have to
ard work every day by each and good or bad, and you can meas- learn), statisticians know the
very one of us. It is the very ure both manufacturing and non- percentage of the population
ssence of our competitiveness." manufacturing processes, such as represented by the are:J. under
According to Jack Kuehler, in publishing IBM instruction manu- the curve, left and right of the
rarranty costs alone last year, als or making customer service mean point. Well, what <loes that
efects costs were _u nacceptably calls. mean?
igh. At the heart of this too! is the Using a measure called a
"Clearly," says Kuehler, "our assumption that if similar ite ms "standard _deviation" (represented
-iallenge for now :: nd for the :J.re me:1sured , the resulrs will by tl: -:? 18th ktter of the Greek
'.!Cade befare us is ro establish show an average value . Sorne alphabet-sigma), they know that
1e IBM company as the undis- items will measure higher than within plus and minus one
uted leader in the quality of . the average, and sorne wil! meas- standard deviation of che
mean--one sigma-lies 68
percent of the normal distribu-
"lf our customers don't get it from us, they tion.
So how <loes chis work, in
will get it from our competitors.,, pr:J.ctic:J.! terms? Suppose you ·
manage a -manufacturing process,
printing circuir boards. for ex-
•erything we do and the speed ure lower. In statistics. th:it aver- ample . You wam these printed
which we do it." age point is called the mean . circuits to be made just right. I3ut
For example, if you measure the machine you\·e set up to
hat Is Six Sigma the heights of 100 men chosen print those circuits can only get
1d How Does lt Work? randomly in North Ame ri ca, you '11 the circuir lines within roler:J.nces
get a disrriburion of heights th:J.t 68 percent of the time . This is a
, wh:1r is Six Sigm::i. quality, how looks something like the cur\'e one sigma process. And it means
>es it work. and what is every- shown in the foil on p:J.ge 7. l\!ost you're going to han~ a defcct rate
1e supposed to doí of the men will be clustered of 32 percent-phenomen:.tlly
Surprisingly, che concept is around. let's say, 5 fcet 10 inches bad.
•t difficult :J.t ali. Six Sigma is a tall. Sorne will be taller. A very If you improve<l the procc..:ss to
.tistical too! that re:idily trans- sm:111 number will be quite a bit two sigma, thc <lcfen r~ltc woul<l
es imo qu:ility measures. It's taller, and a simil:.H number will fall to 5 percent. A six sigma
opted from ivlotorola Corpora- be shorter. process would produce a defect
n·s award-winning qu:ility The beauty of Six Signu is that, rate of 2 per one billinn units, or
)gram of the s:ime n:J.me. You throu~h a relati\'ely simple c:.dcu- 99.9999998 percent defecc-frce
//J.\( lnlt'nllll l'St! 011~11
 5 //]_\/ .\ law1ge111e111 Ut'{'Or1 , lf>nl 1990

work. Now, most process means
or ave rages te nd to vary a little .
That is, the hi.~ :, point on that
normal d istribucion curve will
move a little to the le ft or right fo r
the very sa me process, sometimes
due to cond itions o utside any-
one's co ntro l.
Facto ring this slig ht plus or
minus shift in the mea n into our
six s igma process gives a value of
slig htly less th., n two defects per
b ill ion , o r 99.99966 percent
de fect-free work-which is 3.4
defects pe r one millio n units. That
is IBM's wo rldw ide q uality objec-
tive fo r 1994.
Loo k at the s igma levels for
so rne co mmon p rocesses in the
United States, o n page 7. The
Inte rna! Reve nue Service pho ne
info rmation qu ality is working at
just slightly unde r the two sigma
level-a very hig h rate of defects
pe r million calls. Pharmaceutica l
prescriptions, resta ura nt bilis and
airline baggage ha ndling o perare
at a bout che four sig ma leve!, o r
abo ut 6,2 10 defects per million
- oppo rtunities fo r e rror. This is
a lso the s igma kve l for produces
of ali kinds prod uced b y what in-
dustry observe rs call an "average"
company.
At the hig h e nd of the scale is
the fata li ty rate for domestic
airline ílif2hts. Their combined
si~m:.i le·, c: : ,; bem:r :h~1n si~=.
currently at 043 dea ths per
mill ion departures.
Where Is IBM Now?
How does IBM measure up?
Com pa nyw ide, th ere are proc-
esses Of) tTlting :.it less than three
Sign~:.1 and so me rhat are close to
and approaching s ix s igma . A
low-e nd exam p le is the o rder
e ntry p rocess fo r software . Says
Kue hle r, "Twenty-five perce nt o f
our softwa re order cancellations
and b illing ad justments a re
"Quality not only makes customers
happier. lt lowers our costs."
caused by erro rs in the a rde r
e ntry p ro cess. That rnakes chis
process a lmost as bad as the IRS."
However, looki ng across the
company, the i-e are s imp ly too
many variJbic:s in ali the proc-
esses to make di rect compa risons.
"The goal," says Kue hle r, "is to
move each of them close r to s ix
sigma . When we do that, two
thi ngs happen: \Y/e no t o nly ma ke
the custo mers happier. b ut we
:d.-.:c !o,'-c:º c; ur c:.1<;es_ ··
How is chis going to happen?
Severa! ways. sa\·s Kue hl er,
including : cooperative tea mwo rk
in deve lop ment .. ma nu facturing
and research. simpler desig ns
w ith maximum to le rances. p rod-
uces deve loped for the ir ma nu fac-
ru nhi lit\·. :ind rhe use of exten-
:,:\ ,: sünu::aicn roo ls t1) ach ieve
the best des ig n and asse mbl y
characte ristics .
And. of co u rse, mak ing Six
Sigma work wi ll take educa tio n .
a nd lots of it. By th e e nd o f May
1990, the to p ma nage me nt o f
every IBM US line of business will
have com pleted a two-a nd-a-half-
day introd uctio n to the Six Sigma
prog ram. Tra in the traine rs educa -
tion ro lls o ut in Ap ril an d .\fav.
Afte r that , each ii:-ie o f í)us inc:ss
will provide detailed edu ca tio n
for its e mp loyees.
"We' re providi ng a se ries of
mod ules that build skill levels in

Customer View of Total Cycle Time

The to tal time between when a customer expresses a need a nd ,;,vhe n he pays his b ill.

Need Solution Produ ct Order Orcler So!11 tio 11 Bill Poy111e 11t
E-cpressed Sp ecified Auailahle Placed Sb1pped Delirered Re11clered Receiced

Dcs ign-Develop Cycle J\ 1:.tke-!'>far ke t Cyck:

Cyclc li me re du ctio n w il l resul t from:

• Process simplific.11ion/ integL1tio n th rou g h e xisting

Q ua lity in the Business Process r rogr:11ns

• Six Sigma execution

111.lf /11/c nwl l :«• 011/r

 7 l[J,\1 ,\fmia.~emenr Report .-!pnl 1990

What Is a Sigma?

-60 -50 -40 -30 -20 - 10 68.26% +JO +20 +J o +40 +5a +60

95.44%

99. 73%
99.9937%
99.9999<t_3 º!;
99.9999998%
Si.x: sigm~99.9999998%-represents a defect rate of 2 per hillion units. For O = Sigma
practica/ use, Su: Sigma, adjusted for sma/1 variations, is 99.99966, which
represents a defect rate of 3.4 per "!i//ion unils.

Benchmarking Quality
In Sorne Everyday Tasks
------ IRS tax aduice vía phone (off the chart)

100,000
(66,810 defects) Restai(ra11t bilis
. Payrol/ processing
1 Order u,rite-ups
t
c)i
10,000
Do
1

:...
o
Average Compa11y
-~
1,000
P11rchased
maten / lot reject mte r 225 de/l'cts/11111/i"\1 1111i1sJ

225 1
100
Airli11
Do11J,.ric mrlinl' ¡11.1.;,ht
f{ltal y mte (O .·U deji·cts J
JO
Best Ju Class:
StxSigma

1 2=--------3'-;-------~4-------'::----------L-I---,-,-,--,-----,----,-;--'
5 6 • (! lif.!,hcr rbm1 Six
S(~ma)
111.\f /11/enw/ l '.<e 011/1•

narket-driven quality applica-
fons," says Dick Linton, director
)f process effecti, ~ness, US Edu-
:ation. "The modules fall into one
)Í three categories: why we're
tdopting Six Sigma, including
10w it relates to existing pro-
;rams; how it will help you; and
10w you can accomplish its goals.
,pecific tapies include cycle time
eduction, particip:itive manage-
:1ent, process marugement, the
1alcolm Baldrige Quality
,rocess-right dmvn to detailed
:)ad maps of how to apply all the
1.formation."
'lho Is Going to Do lt?
[t is not a question for develop-
1ent, or a question for manufac-
uing," says Kuehler. "It's a joint
uestion. And it :líplies to many
f our processes u .nside of
"Six Sigma quality is not going
to be implemented by fiat from Armonk.
· The key to success is our people."
1anufacturing and development
; well."
To achieve its goals of "mar-
~t-driven qualiry equals total
1stomer satisfaction," IBM must
·ogress about twice as fast as it's
!en moving in the last five
::us, says Kuehler.
"I know it can be done," he
o/hat Is a Defect?
ny variation of a customer requirement large enough to ca use
issacisfaction.
::.J Defects occur in al! areas:
• Hardzl'are • Orders a}l(/ hills
•Sojill'are • Tecb11ical 111a111wls mu/ suppo,t
•Se,více •Empluyee a11d mmwgeme11t sen•i<.:es
6 IB.\f .\fc111ag e111 e111 Rep on
says. "We've seen ir done in other
companies. And I'll srack our
team up wii i1 :.iny of t:iem any
time. Understand that there is no
magic in the words ::J.!one . Si.,x
Sigma gives us a common goal-a
common measurement tool-and
common rermi nology. They need
to be implemented in every plant,
every lab , every branch . service contains 80 opportuni-
office--eve".- !B.\ 1 loc:nion. ·
"And it"s noc go ing to be
implemented by fiar from Ar-
monk. The key to our success is
our people, each of us in our
own organizations," Kuehler con-
tinues.
"If we expand our vision, we
can see an IBM where our cus-
tomers always receive perfect bilis
on time, our solutions are always
delivered defect-free and on time,
our service people are :ilways
prompt and J.1ways fix cusromer
problems the first time, our
cusromer manuals are error free
and easy to understand, our
leadership in the marketplace is
undisputed and our profirabiliry
and growrh climb to record
heights." O 3. Correlate 225 on a s igma
- by Ch 11ck Boyer
/LJ.\f /11tcnwl t:s,• 011~1·
Apnl 1990
Colculating
Sigma-
An Example
Assume that your productor
ries for error. :tnd th:n the unit
used far this analysis corre-
sponds to one unir of the
productor one cycle of service.
(A defect is a defect in the eyes
of the customer. A computer
sysrem with 10,000 parts may
consist of 80 field-replaceable
unirs . From rhe customer's
view, a failure of any one of
the 80 units is a defect. There-
fore there are 80 opportunities
for error.) \'O\Y. :.issume th :lt in
2,500 of rhese units. -15 Jefects
were discovered. What is the
sigma leve!?
l. Calculate Defecrs Per Unit
(DPU). DPU = Total number of
defecrs divided by rota l number
of units. Or. -í5 di,·idc:d hv
2,500 = .018.
2. Calculare Defects Per
Million Opportunities for Error.
DPU times 1,000,000 clivided by
the average opportunities for
error in one unit. Or, .0 18
times 1,000,000 di\·ided by 80 =
225.
graph. such as th e one shown
in the illustr:1tion on p:tge 7.
This will show tlut this
process is oper:.iting ar :1 sigm:.i
leve! of 5.
A Foil You Can Use
The foil on the following PJRC is
recommended for use :it your next
staff m~ting.

Morale Takes a U-Turn in
Asia/South Pacific Area
by Bruce C!ajlin, Senior Jfon{l:; :ng Directo,;
IBilf Asia Pacific South
pon arriving in my position
U as general •:1::inager of "'·h:n
was then A:,i.. · ,urh P:1ciLc .-\rea
(A/SPA) injanu;iry 1989. l \vas
confronted \Vith J .. good-ne"'·s.
bad-news"' situation. The good
news was that our industry was
strong and our business prospects
bright. The bad news "'·as that our
people did not share that opti-
mism.
An opinion survey in 1988 had
shown a dramatic decline in mo-
rale, a decline that extended
across almost every country and
ali functional areas. \'i/e knew that
the continued erosion of mora le
could lead to excessive attrition,
increased manager/employee
concerns, and-ultimately-the
- failure to achie\·e our business
plans. And so. , 'J í mana~<.:mcnt
team began a three-part program
to turn the situation around.
The first part of our program
involved senior management.
Through both performance plan-
ning and compensation, we made
it clear to every senior manager
that the management of mora le
was one of their highest priorities,
and that it would be rewarded and
recognized accordingly.
\'i/e asked each general manager
to personally take the lead in the
execution of their countries'
employee opinion survey action
plans. These action plans were
prepared and reviewed at a gen-
eral managers' meeting devoted
entirely to the management of
morale.
From a headquarters perspec-
tive, our personnel staff assumed a
H 1/J.\/ ,\fww.~e111e111 H<"fX ,11
proactive role. working directly
"'·ith country m:rnagement on th e
implement::ition of their pbn::-
And many Asia Pacific senior
managers, as well as senior
corporate executives, visited
virtually every country in the
region, reinforcing the impor-
tance of good people manage-
ment.
Asia Pacific South·countries
Australia
Bangladesh
Brunei
Burma
Hong Kong
India
Indonesia
Korea
Macau
M:ilavsia
New Zealand
People's Republic of China
Philippines
Singapore
Sri Lanka
Taiwan
Thailand
The second part of our pro-
gram was _to provide support to
the most important links in the
management chain-the first- and
second-line managers. We re-
vamped the management devel-
opment curriculum, making it
more contemporary and relevant.
Then, every manager received at
least 40 hours of management
training, 95 percent of which was
completed in the first half of the
year.
In addition, ali levels of man-
agement participated in quarterly
,1pril 1990
Indi\·idual Morale Measurement
re\·i e'l:\·s. designed to assess and
r::.-s¡; JnJ to our people·s needs .
The third focus area was to
enhance our people management
programs. We reviewed compen-
sation in every country to ensure
we were maintaining our com-
petitive position. We did the same
for benefits, making certain they
addressed the unique needs of
our people in the differing coun-
tries and cultures where we do
business. Last, in those instances
where there were serious work-
load issues, we made every effort
to rebalance the workload on our
people.
Throughout the entire program,
we stressed the importance of
communication. particularly
through an ongoing series of
roundtables and executive inter-
views. If the previous survey had
shown one thing, it was that the
managers who communicated
most effectively also managed
most effectively.
We've seen real progress, as
measured by the 1989 opinion
survey, with both management
and non-management morale up
substantially across the region.
And, we're continuing this focus
on people management. For as
quickly as morale moves up, it
can move down.
We continue to be confident in
the growth of our industry in Asia
Pacific South. And we are con-
vinced we can grow even faster
than the industry, because our
people share in our optimism and
confidence for the future. •
IBM lntemal Use Only

How You Should Manage
In a Changing Corporation
Peter Drucker, econo1nist and nzanagenient
consultant, discusses everything j,~o,n the future role of
management to the survival of large co1npanies.
or more than half a century,
F Peter F. Drucker-author,
consultant, economist and busi-
ness and social philosopher-has
obsemed and injluenced manag-
ers in both the prívate and public
sectors. In his latest book, The
New Realicies, he attempts not to
peer into tbe future, but to suggest
trends and changes that are
under way in international corpo-
rations right now-changes he
says few are prepared to deal with .
IBM Management Report
recent(y interoiewed Drucker,
who, at 80, :"., Clarke Professor of
Social Scien ce at Claremont
Graduale School in California.
Here are lbc ;) ighlights:
Flattening tbe management
structure
One major change, which is al-
ready under way in IBM, is the
move co fewer levels of manage-
"Many management levels
neither make decisions nór manage
people. They are human relays."
ment. Now. your com¡,any has
never heen a cerribly stee p or-
ganiz:.Hion . Compared wich
General ,\locors, for example, you
are a bro,Yn.scone house nexr to a
skyscra ¡,er. l3ut you still ha ve a
good many levels, and you are
cutting chem .
\\'e are moving cowar<l flactcr
organizations for a couple of
re::isons. One is the rremendous
9 1/J.\f
growth of informacion . This is noc only ocher large organization
the same as che growch of infor-
mation cechnology. Mosc com-
puter users today are still process-
ing daca-payroll. billing. inven-
tory. They're doing tradicional
tasks, only faster.
But che moment an organiza-
cion brings information in , ic
realizes chat many leve ls of
management neicher make deci-
sions nor manage people. They
are human relays . Their function
is co amplify signals coming up
from the pbnt floor or down from coul<l see them. Of course . .so
above . \Vith informacion ac our
disposal. we don ·c nee d chose
relays anymore.
InciJencally, moving toward
flacter organizacions does noc
mean gecting rid of hierarchy.
One still needs to know when a
decision is final and who is
entitled to make it. One needs ro
know ~-ho is res ponsible in an
emergency, because \Yhe n che
ship is going do,\·n. ic's too late
to uke :.1 YOte.
Wby tbe traditional corporate
mo,lel /Jas to ,go
Our org:.tniz:1tion charts wi ll he
quite d iffea:n1 from the tradic io n:..d senior m:111agemt:nt. Bue, seri-
one. which w:.is copied from the
military. \Vhen l:.irge husinesses
firsc emerged 120 ye:.irs :.igo. che
.\/{111llt1,e111e11 1 Hepo ,1 April 1990
around " ·as che military, based on
the command and control model.
At that time. che milicary con-
sisted of very large number.s of
common soldiers who ali <lid rhe
same unskilled. repecitive job. The
educated people were officers.
The milit3.ry also overscaffed irs
officer ranks by ar lea.se a factor of
two because che mortality race for
officers was quite h igh. They were
·che ones who ha<l to stand up in
bright uniforms so char rheir men
could che enemy·s snipers. So you
ha<l 10 liave aspare officer to take
his rl:ice .
The :.1rmy \\·as builc on ::1 prin-
cipie of redun<lancy. le had co be .
Business copied th::it. But ~·hen
the common soldier is replaced by
the educated, knowledge3.b[e
srecialist. we d o n 't need so man y
ranks of "office rs, " and we don 't
need so many "Officers. :'
Willflatter organizatioris mea11
fewer opportzmities?
:-.Ltnagemenc ch:.iins w ill l1:1ve to
be shorc enough so thac :.in :..iblc
person can make ic to che top.
¡,ro,·ing himself or herself :.dong
thé ,,·ay. Tod:..iy . you don·t gel inco
m:.in:.1gemen1 until at kast tht: :1ge
of 25 . unless your fathcr owns che
joi nt. Then yo u l1:1 n: .1ú n1 ngs on
the l:.t<.kkr. :.1nd <.::.1ch ukcs tlm.:e
ye:.1rs . So you h :l\'t.' l<> he u~
héfore you can hé consider<:d for
ously. chis kind oí .-;ystem jusc isrú
going w work.
You have to h:.ive shorc t:nough
111.\f t,u.-nw/ l ·><' 011/1·

ladders so th:H gc od people are
doing the really important stuff
earlier in their oreers. Basically,
most of those in:.: ~mediate rungs
are jobs that have you going down
a checklist.
Fewer management levels very
jefinitely mean fewer manage-
nent opportunities. This is a basic
:hallenge of managing people. Es-
)ecially in the last 30 years, we
1ave really taken :1 great deal of
atisfaction out e, :he job and put
t into the promotion. Let me
"We must put satisfaction back into
the job. Employees must derive satisfaction
from staying within their specialties, not
from moving up in management."
ustrate. My former students ca11
e up and say, "I need your
lvice. I've just been promoted to
sistant vice president. What do I
i now to get promoted to vice
esident?"
This kind of system creares an
ormous amount of heartbreak
cause there just aren't that
iny jobs at che top. People
1ch plateaus ear!y and feel
feated, which is nonsense.
We must put job satisfaction
:k into the job. Employees
1st derive satisfaction from
ying within their specialties,
: from moving up che manage-
nt ladder.
zodel ofJob satisfaction
·he opposite extreme from the
itary model is the s~·mphony
he.stra. There are no manage-
nt levels in :in orchestra. The
nch hornist has no ambition to
orne conductor nor to become
. violinist. I li.s only promo-
1al oppom1nity is to become a
er French hornist, eventually
French hornist.
he .same i.s true \\'ith the other
drcd musicians. There are no
10
vice presidcnts, no group execu-
tives. They a l! play under one
CEO, and they ali follow che same
score. Yet, I tell you, the re is no
organization with greater job
satisfaction than the first-rate
orchestra . The musicians !ove their
work.
Are you a soloist ora leader?
The orchestra is a good exam ple
of an informat ion-based org:rni za-
tion. Information flows from both
sides. No conductor can play the
French horn as well as his French
hornist, and he would never
dream of telling the musician how
to play his instrument. But he
knows what the musician and the
instrume nt a re capable of. lt's his
job to get across to the orchestra
what he hears. That's a true infor-
mation process. The difference
between a first-rate conductor and
the others is not music. It's his
ability to communicate.
Believe me, rypical se nior
managers sees the mselves as
soloists, not as leaders of e n-
sembles. They think communicat-
ing means sencling out a memo.
They do nor realize that commu-
nication is made by th e recipienr,
not by the sender. So they talk a
lor, wrire a lo t, but they are
basically not focused on being
unde rstood :rnd on understa nd -
ing . They have neve r been trained
to do that: they have neve r h::id to
do it. Th:it's changi ng very
quickly.
17Jree questiottsfor e.ffectfl,e
managers
There are three set.s of quc.stions
man:1gers need to ask and answer
IBM ,\fc11wge111e111 Repo n Apnl 1990
to fu nction in a n orga ni zation that
is based on information.
The first is ... \\ 'h:lt in'.",, rm:1::nn
do I need , from ,vhom ::ind \vhen?"
In most companies, they look to
the information sys tems people to
give them the answer. That's like
hiring a carpenter a·nd asking,
"What can you do for me?" You
have to know whether you want a
tabl e ora bookcase.
The second is. ·\Vha: info rma-
tion do I owe, and to whom?" This
is the score that your musicians
-your employees-are to follow .
Employees need a clear mission .
And they need high demands. The
worst thing you ca n say to a
pianist is, kThat's an easy piece 10
play."
The third is , "What is my mis-
sion? How do I convey it to my
employees, and how often?" This is
nothing new. IBM was built on an
almost monomaniaca! sense of
mission. Everybody down to che
mailroom clerk knew what their
mission was , and it was empha-
sized constantly.
Sbort life spa11 of i11fonnatio11
Education and constant retraining
are crucial to effective manage-
ment. Skills change maybe once in
a century. That is not the case with
knowledge.
Socrates was a stone masan. If
he carne back today, it would take
him about a week to sta rt working
in a stone mason 's yard here. The
stone mason 's skills have changed
very little. But if Socrates the
philoso pher c::ime back :rnd
walked into a universi ty's philoso-
phy department, he \YOuld n 't
undersrand one \YOrd.
KnO\vledge h:1s a lulf-life of 18
months. You h:1\·e ro he continu-
ally learning, horh within tlic or-
g:inizarion and outsi<le .
011 compa11y loyalty
lt is easy to confuse comrany
loyalty with fear. The loyalty of the
J:1panese ,vorker i.s about HO
percent fear. If you lose your job
111.\f !11tenu,/ Use ú11/¡•
 11 113.\/ .\/ml(lge menr Reporr , ;pnl 1990

in Japan, you r-:.: basically une m- pul! off miracles, an<l you c:.1 1ú d irecto r of ma inte nance to atte nd
ployable for che rest of yo ur life. always count on you r competit io n the next fac ul ty meeting to a nswer
And in the ' · S . ali of these questions. I J!mosr i,:,d a s~~:~:c <J:1
to m:ike ,~,ist:1k<..':;. You 1111.!:-:, li:; ren
hostile takeo\ ...:: :; and leveraged to the m:.irketpl:.ice and ha\·e \·o urmy hands. ''\"v.hat? Have him in a
bu youts have driven a wedge sense organs out. If you 're goi ng facu lty meeting' He does n't have a
between top management and the to be big, yo u 'll h:.ive to be flex- Ph .o .·· The problem was that they
managerial workforce that is ible too, and be abl e to mo \·e and did not respect his function . No
unbelievable. You can 't imagine sometimes c hase wi ld geese. They director of maintenance would
how demoralizing the "golden may turn o ut to be swa ns one day. eve r become dean . But in a com-
parachute" is. Senior manage ment pany that sole ly provides mai nte-
at these comp:inies may think it's a 0n tbe tre11d toward "o ut- nance (o r comp ute r se rvices. :ic-
defensive t:::.c :.1 5ainst takeover, so urci11g couming o r sofrware , for d1ar
but that's not ltow it's viewed. We are seeing a movement towa rd matte r) that ma n could rise in the
Where is com :--;iny loya lty then? what I c:.ill the unbund ling of the o rg::inization a nd be surrounded
Manageme:-.: has to show corporation. the farming out of by colleagues who understand
people that their jobs are impor- more and more services. For mos t and value what he does.
tant and that they are take n seri- people in IBM. the hospital they
ously. Employees don 't work for were born in did its own mainte- How to deal with 011rushing
the shareholde rs o r the financia ! nance, its ow n billing a nd pro- cbange
community. They need so mething vided its own food services. The first thing to know is tha t
else to motivare them. They need Today, the majority of American there really is go ing to be change.
to know that they contribute. They hospita ls contraer these services. Ce rt:iinly, you have to know what
need the opportunity to achieve. One of the larges t of these your own strengths are, what you
vendors is ServiceMaster. It takes a re good at. That's something few
Is bigness advantageous or care of a good many hospitals and people know. Build innovation
cumbersome? office buildings around the world. into you r life. And accept the fact .
A corporation's size is becoming a The regional vice president for that you are no t in control of the
strategic decision . Now, IBM is southe rn California. \vh ich is o ne uni\·erse, which top m:.inagement
committed to be ing the industry of its biggest territories, is a of big companies se ldom is wi lling
leader, which means you have to woman who 12 ye:irs ago started to accept. They bel ieve th ::i t if they
fight on man y -~ ,):1 ts. That m:ikes with a broo m :inJ cmiidn ·r re:id o r "-Tite it in their plan , then ir":;
you vulnerable beca.use little mice write. Where would s he have going to happe n .
can nibble wherever they want. gone had she stayed in the main- Don't tempt the jealous gods,
Earlier in this century, Siemens, tenance depa rtment of the hospi- which IBM did sorne years ago by
General Electric, Westinghouse
and AEG were the world's leading
electrical companies. AEG, quite "Be flexible and chase sorne wild geese.
possibly the most promising of the
four, decided to pick segments of They may turn out to be swans one doy."
the market to go after. The othe rs
stayed in every segment and
fou ght every battle. It was quite ·ta l? She'd still be pushin g th e decbring unre:t listi c go:i. ls for th e
bloody. But AEG's decis ion was broom. Outside support org:.iniz:i.- next ce ntury- by the n the U.S .
the beginning of its down fa ll tions not o nl y provide qu:ilitv \\·o uld be :.1 moon to the Il3,\1
because one of the areas it chose servicés, the y provide new o·p por- p b net. an<l the sun would be in
tunities far p eo ple w ho ot he rwise
to ge t out of "-'as e lectronics. In th e proc<.: ss of b~co ming :.1 sa tcl -
fact, its board of directors made would not be hi g hly v::ilued in the liic . :\o lr(.'e !ns en~ r gro\\'n into
that decision the very day the com pany. the sky. :\ccept tlnt. O
p:.ite nt was gr:.m ted for the aud io Le t me g ive yo u :i.nother ex- - CU lll'l! l~(I/Í<JII 1ritb Ju11 ftra/(1
tube. (History is fu l! of such iro-am ple . I o nce helped run :i. s m:i. ll
nies.) libera l :.i rts college in Vt:rmont.
So AEG is a w::irning example of Winters in Vermont are not be-
not trying to outsmart r:.ipidl y nign, :in<l we ha<l m:.iinten:.ince
changing technology. If you pick, problems. which our faculty
you ha<l bener pick wisely. compl:.iine<l bitterly ahout. So I
I3elieve me, you can't always fin:.illy sugges ted th:.H ,,·e ask our

111.\I /111,, nw/ l ":i,• <J11/¡ •


Chailenges, Stress on the Company
Require Best in lv1anagement Skills
IBM Senior Vice President ivalt Burdick is confídent
about the future) but he cautíons that "nothíng is
guaranteed if we don 't pul! togetber."
\Vallan E. Burd fc·.s1 is !B,'vf senior
uice president, personnel. IBM
Management Repr)rt interoie-wed
him to find out what IBM manag-
ers, wor!dwide, should knou.J
during this year of continuing
transformation.
Q. Wbat do you see as the key
cballenges, worldwide,for IBM
>nanagers in tbe 1990s?
A. They need to do their pare to
:nake chis company a world-class
:ompetitor. This means market-
::iriven quality; being more effi-
:ient; shortening schedules and
ieliveries; and accomplishing
nore with fewer resources.
:inally, there has r.ever been a
nore important time for managers
:> focus on basic human relations .
"he workforce of the future will
,e more highly educated and will
'.!quire managers to play a differ-
nt role. They muse creare an
nvironment that will maximize
1e contributions of our employ-
'.!S .
l. Sorne employees think that
~spect for tbe individual has
?en eroditzg. Wbat is your
·action?
. There are many byproducts of
e steps we've had to take, and
)t :.di of rhem are desirable.
e've had to do things on a
assive. r:ipid and very costly
ale. Frankly, looking back. if we
d more notice or, perhaps, if
~ h:id more vis ion of the f uture,
~ would h:ive done sorne things
Terently. But. nohody in our
iustry \vas that clairvoyant.
12 //J. \/ .\ /c11U1.'-<l! lll l! lll flepo r1 .·\p nl ! 9')0
Sure, I think there·s stress on very high correl:1tion hetween
respect for the individual. employees' morale :1nd accept-
Further, we've not communi- ance of company directions when
cated effectively enough to help we h:l\·e massive communic1tions
our employees understand why from the manager-not from che
we took the steps we <lid. This bulletin boards or from personnel
caused anxiety and frustration. people .
When we execute our plans-
redeployment, retraining or Q. Sillce we 110w have f ewer
whatever-we do it in che bese ma11agers, aren't we are asking
way we know how. a great deal more of tbem?
And so, what we intend to A. Yes. That's one of the byprod-
"Our company and our destiny depend
on the quality of our workforce."
have happen, starting in the ucts of che transformation. \Y/e
boardroom, isn't always executed have to conduce our business
by every single manager every- more efficiently than we used to if
where around the world che way . we are going to meet the new
we would like . level of internation:11 competition.
When mistakes are made, We have to manage with larger
Open Door, Speak Up and other spans of control and do it more
programs are there so they can be effectively than in the past. In chis
corrected . I understand che proc- environment, managers must rely
ess itself causes sorne stress, but more on people and succeed
it's ve ry important particubrly in through their contributions and
times like this. commitment. I think there are
severa! things going for us that
Q. Wbat can ma11agers do to m:1ke this reali:...tic to accomplish .
bri11g about more stability? First is the confidence and com -
A. First, we have to have more petitiveness of mir managemenr.
continuity in jobs, for managers Second , there is no insti1u1ion in
and for ali employees. Second, as existence that inn·sis as much in
a management team, we have to management educ:Hion and com-
communicate our goals more munications as we do. Third. ;1s
regubrly and more consistently. we stahilize. there \\'ill h<.: more
The first-line manager in particu- continuity in 1.:mploy<.:1.:/ 111:mag<.:r
lar has to understand and explain rdationships, :tnd that I hdieve
these things hem:r th:1n ever will enh:ince th<.: manager's ahility
before in our history. There's a to handle a larger sran of control.
1/l.\l l1ttl'n1<1/ l'S<' 011(¡,

Q. There is an effort under
way-in the U.S. in
particular-to improve tbe
quality of IBM's workforce
using ranking as a tool Can
you comment on this?
A. Our company and our destiny
depend on che quality of o ur
workforce. It's not che brick and
morcar of buildings or material
things, it's ch e people th at wi ll
make che di: :·e rence. And ranking
will he lp managers recognize che
top and botu:, m p e rformers. It
should enhaace meritocracy and,
properly applied, can have a
positive impact on morale. The
ranking process should be
viewed as an adjunct to Perform-
ance Planning, Counse ling and
Evaluation (PPC&E) to improve
performance manageme nt and
ultimately che quality of our
workforce.
Q. Does IBM use ranking
internationally?
A. Yes . It h:: - been used outside
the U.S. for many years in ve ry
different and, in sorne cases,
difficult e nvironments, and with
considerable skill, I might add.
Every country environment is
different, of course, but our
manageme nt tea ms are trained to
handle this kind of program
"Full employment is a byproduct of our
relative prosperity."
around che world.
Q .Jolm Akers bas said, "It's
impossible to guara11tee for ali
time full employme11t unde r
any a11d all circumsta11ces."
Could yo11 e.Ypa11d 011 t/Jis?
A. First of all. to position full
employment we have to re me m-
ber that we are a bus iness e nt e r-
prise. Our miss ion is to conduct
business an<l grow and re curn a
profit to our sh:1 reholders. Full
u //J. \f .lfa 1wP,e111e111 Reporr
e mployment is a very desir::i.ble
ob jective of this compam·. ::i.nd
we've achieved a gre:.i t record. In
fact , we've just exte nded our
record to 50 ye:.irs. e:.i rlier chis
yea r. Bue it is a byp rodu ct of o ur
relative prospe rity. It"s not de-
cided in che boardroom : it's no t
decided by th e chairm::i.n: it"s not
decided by me . lt"s decided bv
383,000 e m ployees ::i. round che
"'·orld. If "'·e don·t pul! togecher,
it's not assured.
I'm very confident tha.t "'·e "'·i ll
succeed . I'm very cerca.in of our
d edicati o n . Anyone ,;;,.·ho doubts
our commitment to fu l! employ-
ment sho uld consider che huge
expense we 've incurred m:.ii ntain-
ing it in che U.S. and in count ri es
around the world during this
tra nsformation pe riod. w e·re a
stronger company today for
having managed this transfo rma-
tion while re taining ful! employ-
ment.
Q. Wouldyou callfull employ-
ment a practice, a policy, a
tradition oran objectil:e?
A. It's nota matter of se m:i.ntics.
In lig ht of what I've just said, it's
not a guara ntee. I realize the re
may be word-watchers on ch is
subj ect, bu t what is rea lh· impor-
tant is our 50-year reco rd . The
real objecti\·e is hO\v to con tin ue
to prese rve it , no t h O\Y \\·e de-
scribe it.
Q. Afler four years of nur
tra11sfon11atio1z, 1cbat is t/Je
stat11s of employee mora/e
today?
A. Generally. we entn rh<.: ·9os
\Vith :;ligh!ly hi g he r mor:1k th:tn
we e nte re<l che 'Hüs. :in<l that was
higher th:in we entere<l the <.kc-
ade of che '70s. Th:lt m:1y surprise
.·!¡,ni 1990 .
a loe o f people .
\X'e reached record hi g hs in the
;: ::L:-, ') 8Us. and l"1 1: not surpriseJ
that it has declined :1 po int o r cwo ,
o n the average. bec1use of ali che
tra nsfo rmation act iviry a nd sorne
of che anx iecy over che things that
we·ve mentioned . Morale varíes by
geography , area. country and unit;
it va ríes by skills. and so o n . Tt
; ~::icks. to sorne exte nt , ,vith the
prospc.:rity of the country. A
cou ntry like Japan. which has
bee n turni ng in very good busi-
ness results. enjoys higher morale .
re doesn ·t necess:i. ril y follow that
when yo u go throu g h transfo rma -
tio n. mora le has to go dow n.
There are nations-Argemina,
Brazil and Mexico. for
exa mple-that are going throu g h
e normous tu rmo il. Yet as 113M
co mpanies, they recemly turne d in
che highest morale in th e ir history.
Q. IBM has said it is reducing
its mauagement ra11ks. lV7Jere
u.'ill tbe displaced 111a11agers
go?
A. Fi rst. a.s a res ult of the Vo lun-
tary Transition Program in che
U.S., I'm sure a number of rhem
w ill be incented to voluntarily
re tire. Second , we have che dual
ladde r in a number of areas whe re
people l1:1ve bee n accustomed to
moving back and forch fro m
management jobs to staff jobs.
An<l finall y, th ere is norm:i. l ::i.ttri-
tion.
Q . llow 11wcb progress bave
u·e made e li111i11ali11g layers of
111a11ageme11t arui it, dece11/rnl-
izi11f!. decis io11-maki11g?
A. Th<.:re :irc: t\\·o imporum <.:k -
me nts to · r<.:stru <.: turing tluc \\·e
muse focus on: man :tg<.: s¡nn of
co nirol :iml l:ty<.:rs of m:1n :1genh.: nt.
Our goal is to h<.: closer to th<.:
m:irketpbce and :is rcsponsi,·e :1:-;
possihle. \Ve h :1\·c impro,·ements
to m:.ike in hoth :ire:.is. The s uc-
cessful organizations of the future
,,·ill he fhtter :inJ more lkxihle.
That"s where \\"C.: want IB\t to he .
//J.\[ /11/("ntlll ( -,.. º"'I'
-.::~~ ... . . . . . ... . , •• ~ 1 · -- -- ~ • ~
 I .J 1/1.\f .\l,111agc111cn1 N,1,or1 A¡m·J 1990

Q. l'V/Jat aúout t/Je import.auce
of IB,H's co111111itme11l to social
res¡umsibifit_i·?
A. People are \ LTY interestecl in
lhe :--ocia! responsihility of lhe
comp:rny. ThL" . \,·ant to be proud
of where lhq ·.,·ork. So. an em -
p loyer "'·ho wants to continue to
be on the leading edge had heuer
be J\VJre of and respond to socie-
tal issues-issues that lOuch every-
one ·s life, like the environment,
education and drugs . Ultimate_ly,
that makes it pnssible to attract the
best peopk . '. •: ,_·ontinue lO be a
career company with low attrition
rates, to have an environment
where people can concentrare and
achieve their full potential. Manag-
ers have lO be particularly in tune
to these things.
Q. Wbat is the progress of our
equal opport.unity and af-
finnative action programs?
A. We continue to hold those as a
very high priority. Fortunately, the
voluntary incentive plans we've
offered. ,Yhilc (kcreasing our lota!
popubtion . h:.i,·e :.1lso had thc
l'ffcct of ;ncre:1s1ng mino ricy r,..- p-
n:sentauo n.
I think you need to \'isualize
equal 0:1,' o rtunit\· as :.1 pipeline
tlut start:, al the recruiling leve!
and ends on lhe Corporate Man-
agement Board or officer leve!.
That pipeline at the hiring leve!
has excellent minorities and
women representation .
We continue to identify those
people whom we think have the
potential '. d be the future officers
of the corporation. While we ·ve
been pretty successful, we've also
had our share of disappoimments,
and not everybody we thought
was going to make it has suc-
ceeded.
Q . Are we are likely to see one
or more blacks as IBM vice
presidents in the 1990s1
A. I believe we will.
Q. How do you see the empha-
sis 011 i11tenzatio1wlization in
/B,H i111pacti11p, our manage-
111e11t population?
A. \\ ·e: ,,·ant to h:.i,·e bt:tter inter-
n:itional representalion in our
m:tnagemer.t . \\·e nl',·,! t~ i:11-
pro,·e our understanoing of inter-
n:nional issues since we do more
and more business outside the
ü .S. l.infortunately, international
assignments are getting very
expensive, so ~ve haYe to be more
and more selective about the
quality and purpose of the~e as-
si~nmenls. 'íh:H mear.:; we should
choose people who have signifi-
cant potential so that they, as well
as IBM , can henefit from this de-
velopment experience. It is incon-
ceivable to me that my job and
others like it can be done in the
future without having a thorough
understanding of the intemational
nature of IBM . O
- Inten:ieu.J by \Foo~v Klein
and Don Mac!ay

John Akers on -,BM's ·r;~nstOrm<:Jf¡¿f¡-:}~t;J,~h

__
- AndProspects for the FuturEJ :'i.,;;1tifi~:)f\1fE
Tbe fol/owing are excerpts from -', .. . to be a competitive advantage for As a result of these actions/ ·•,-.
Cbairmanjohn Akers' Letter to ~ ,._. the company. . .. -. -·. ·. ... . we will reduce IBM's ongoing .· ..:
: Stockholders in the recently pub- -·:":-- While our business in th.e·:-:·:::::o,:;_-'~"'. cost and expense "iáte by ap~.:~·{.
lished 1989 Annual Report: ·.) -};: · United States is improving, that >·_ proximately $1 billion per year: ·
-:•> < ~,·::!,/-:•·:::: ·'. •:· :··· ·---~ : ···. improvement is notas rapid as ,:· •. We expect to see the return in :
. Over the past four years, we we expected. As a result, in 1989 our 1990 results, and to áchieve
have taken a series of actions to we announced further actions to the full eamings benefit of about
reduce our costs, expenses and restructure our operations and $1.00 per share in 1991. :,:?>>'.º~::
structure, and to sharpen IBM's improve our efficiency. These Given a reasonable economic··
· competitiveness worldwide. We . · initiatives include plans for addi- . environment, IBM is planning
. have consolidated ínanufaccuring tional consolidations of capacity for growth in all major geogra-
- capacity; we are operating with. and reductions in selected skills. phies in 1990, led by the Asia
fewer layers of management; and Through a combination of attri- Pacific area, followed by Europe
we have reduced overhead and tion and incentive payments, we and the United States: With these
indirect positions by sorne expect our U.S. population to plans, we expect significant im-
50,000, while maintaining our decline by at least 10,000 during provement in our financia! · •'-
tradition of full employment. We 1990. The year-end figure of · results beginning in 1990, with
believe that the recurns-in the 206,000 will representa reduction additional progress in 1991.
loyalty, flexibility and productiv- of 37,000 from the 1985 peak, and ..
ity of IBM employees-co.ntinue a retum to the leve! of 1981. ..,.,. _ ....
. ..:· . .-~; ..· ·.. · ._... _

IBM I11Iema/ Use 011~)'


Ful/ Employment:
How /BM Maíntains /t .
From Amdahl and Apple to
Ni..xdorf and Wang, severa!
major computer firms greeted
the new year on a grim note.
They ann o unced programs to
slash cose:,. consolidare staffs
and reduce jobs. IBM, of course,
announced strea mlining
measures of its own !ase
December w he n ir rolled out
plans to cut coses and eliminare
sorne 10,000 jobs by year-e nd
1990. Bue what distinguishes
IBM from che rest is what it did
not announce: layoffs. Despite
media rumors to the contrary,
the comp:1:1y unveiled
incentives for voluntary
retirement and resignation.
Why the T' word is a nath-
ema to boch IBM and IBMers is
understandable. Afcer ali, no one
wancs to be laid off. And for the
company, full e mployment
instills employee loya lcy and
makes IBM a more desirable
employer. An equally important
factor may be tradition. IBM has
upheld full employment for a
half-century.
Yet, in a n industry fraught
wich cyclical economics and
intense global competition, how
does IBM maintain full employ-
menc when so many other
companies ca nnot]
Employee Flexibility Key
"It starts with hiring the bese
people," says Jim Parkel, II3M
director of employee re latio ns at
corporate headq uarters . "Ou r
employees give II3iv1 che flexibil-
ity to respond to industry
changes. \'\'hen tcchnology
shifts-and the skills ,ve need
along with it-,-ve·ve foun<l our
employees to be very flexible .
They c:in be retrained and rede-
15
ployed. and they excel in ne,;v skil l
areas."
Parkel estimares th:i.t in the !ase
10 yea rs sorne 63 .000 ernplovees
were retr:iined . ir.cludin~ T.000
who we re redepioyed to new jobs
in new locations.
The nee d to reba lance ski ll
groups also explains o ne appa re nt
inco ng ruity: IBM hired more th:rn
197,000 people worldwide from
1980 through 1989, even as it
provided incentives for tens of
thousands of employees to leave.
"O ne could say we hired half che
company in the last decade,'' says
Parkel. (IBM currently has about
383,000 employees, worldwide.)
"These new employees were
need e d beca use of normal attrition
and che need for more people to
supplement specific skill ::ire::is,
prima rily programming, e ngin eering
and marketing. At che same time,
we had excess people in o th er skill
areas, such as headquarce rs. manu-
facturing and produ ce servicing. So
we created programs to attr::ict
people in these groups to leave vol-
untarily."
Parke l says that steadfastly
upholding II3M's B::isic Belief of
respect for che indi\·idual :illows
IBM to ask its employees to retr:i.in,
transfe r and mo\·e-:t nd oht:1in
good results. ··1[3:\lers tru st ,...-e .,,_-ill
move work to people :rnd peopk to
work. Even ,;\·hen \Ye close 111:inu-
facturing s ites, they know ,;ye "·ill
trea t them fairly. 1 c in ·c think of a
comp:rny \Yith a more fl ex ible :ind
loya l workforce ...
How loyal are IB.\lers? :\t 2.3
percent , 113.\l's n>luncary attrition
rate is one of th<.: 10\n.:st in industry.
That <loesn ·r include employ<.:es
who le:1ve undcr spcci:.il
circumst:inc<.:s. such as through the
1990 U.S. Volunt:try Tr:rnsition
1/J.\f .\/wwg e111e111 Rcporr April 1990
P:iyment and·similar programs in
Peru. France and Germany.
Such high company loyalcy
doesn·r come easily, Parkel adds.
..Flexibi lity is a ¡.,,_·o-,;\·:1y strect.
!Bi\·l must a lso be flexible in
responding to e mployee needs."
How IBM Responds
He ·notes that in the last 10 years,
IBM creaced se\·er::tl benefits pro-
grams that help e mployees
balance work \\·ith personal
needs. These include pbns that
promote preventive health care
and personal capital accumula-
tion. Others, such as the Em-
ployee Assistance Plan (EAP),
help em ployees and their fami-
lies deal with substance depend-
ency and ot_her crises. And to re-
spo nd to changing de mograph-
ics, IB\1 rece ntly introduced child
and elder care referral se rvices,
more flexible working schedules
a nd variations of lea ves of ab-
sence . Now in the experimental
stage are even more programs,
such as lea.ves bridged to retire-
me ne and expanded opportuni-
ties for pare-time employment.
Perh:1ps most important.
P:.irkel :i.dds. "Flexibility also
means liste ning to and incorpo-
r:iting employee ideas about im-
proving the business.
.. \\: 'e \ ·e seen companies
:1h:rndon longstanding full em-
ployrncnt pr:tcticcs. Ochers curn
to 1:.i,·offs ac th<.: first sign of
economic do,,·mu rn. Bue IB.\ l's
hcriuge :tnd \·:tlucs . our pr:tctic<.:s
:1nd our progr:1ms :dlow us to
exercise any numher of opcions .
And our employe<.:s m:ike chese
options work .·· r
- l~i-]011 ftl'ara
ILJ.\I /111,•mal l S<' Ull~I'
•• • -- ,: , .; , - .. , · •• · •, , . ,. .,..., ,h- .. • • :

Concentrate More on Main Street
Than on Wall Street
Successful relationships are built
upon trust and candor. We e njoy
such a relationship with IBM at
the local leve!, but we have occa-
sionally noticed an information
gap that undermines our business
partne rship .
For example, initial shipments
of the OS/400 Release 2.0 operat-
ing system contained flaws. Little
information was available about
those flaws until corrective action
had been completed and publi-
cized by IBM. In the meantime,
we were urged to upgrade with-
out knowing the risks . We always
develop contingency plans for
situations like this, but these pla ns
are far more valuable when we
know the risks.
It's understandable for IBM to
resist discussing imperfections
Bureaucracy Still Seems to Be
Getting in the Way
Not surprisingly, one of the over-
riding issues in health care is
expense control. So providing
information services for a major
health care center, such as St.
Joseph's, means that we are ex-
pected to do a lot more with _a lot
less and to do it awfully well.
I look to IBM to he lp us d eal
with these issues. The answer may
not always mean acquiring your
latest, most leading-edge techno l-
ogy, but perhaps using exisring,
proven technology. Our ch:illenge Cbüf l11fom1m10 11
thus becomes your ch:illenge:
providing excellent customcr
service even whe n we can 't
promise a quick sale.
I think your i'\~uional Servicc
Division pcople have stepped up
to that challenge. Not only do they
do the basics-service our equip-
ment, etc.-they are very scnsitive
!G liJ.\I . \/{lll{l_Q('lll(!II( Nl'{)() rl , ipri/ 1990
becau se it may affect your reputa-
tion , parti~ularl y on Wall Street.
But as a customer, I am also an
investo r-my company bears the
risk of systems investments. Those
of you in IBM a bove the loC1I
;_~.r~ · :._.,. e l must re rn c:m:)cr \b¡,, ~,n.:c r.
' 1\.
not just Wall Street.
~A:i.i Our overall satisfaction with
U;J ·G -l~t.i 18~1 is high , thanks largely to our
18'.\1 (n:.irketing people . They have
focused on our needs and pur-
Bill Ceist. sucd solutions, whether or not
Director of /11/o nna - those solutions were in IBM's
lion Sen,ces. producr basket.
Al11mi11u111 & I urge IBrv! to support customer
Plastics PackaRi11g part nerships in every possible
Croup, Packag ing
way, e ven if it means sorne risk to
Corporation of
America,
you. After ali, true partnership in-
Northbrook. /1/inois. volves sharing both risks and re-
United States wards.
to our busines.s· realities. Quite
simply, they·ve been around.
sharing ideas and bringing in
other IB.\le rs to talk to us. They're
with us for the long haul.
I kn<nv m:--1 is trying to im-
prove the way it <loes business .
And I\·c seen encour:iging
ch:rnges. But I slill see signs o f :10
enormous hureaucracy behínd the
scenes . Ideallv . we·d like IB.\1 to
he just likc :1 small business in
Jobn Aleare:::. \\·orking \\·ith us: re.s ponsivc . e:1sy
to dc:d ,,·ith; onc in which ,ve c:111
Officer. re:tch thc right pt:oplc. right
S1.J"s<71b :( l lcullb :t\\·ay. I urge you to he conscious
Ca reCelller.
of how <:asy or difficult it is for
7,1111{>{1. l-1u1idu .
cuswmcrs to do business with
l "11/(<',/ S1a1<,;
IB~I. i\l:tny people stri\'e for our
business. bue rhosc who providc
<.:xcdlent scrvice :ind attc:ntion in
thc long run wíll get our business
<·ve1y ti 1rn:.

IBM France on Right Track in Closer
Customer Ties
IB.\1 has s hown a new vitality in
developing solutions for our
information systems needs . The
driving factor has been Systems
Application Architecture, around
which you have developed hard-
ware and sy ~tems integration. SA.A
has allowed us to master the
evolution of our systems and plan
new developments.
I am very satisfied that you
understand Continent a nd our
industry, retail distribution. You
are working closely with us to fine
tune o ur strategies. In fact, in
severa! majar developments, you
se lected Continent as a pilot
customer. T~e fact tha t we are
considering :BM to provide global
services to free our company from
tasks we cannot undertake for lack
of sufficient reso urces is a measure
Our Mutual Objective: Focusing
Relentlessly on Customers
We have a simple vision : to be-
come the most successful oil
refi ning and distribution company
in Australia. Give n o ur extremely
competitive marketpla ce, this is a
tall arder. \Y/e can fulfill our vision
only by focusing relentlessly on
customer needs and providing the
bese se rvice in che bus iness. This
req uires an e no rmo us change ·in
attirud es--o ur own and those of
o ur f ranchised resel le rs.
To most custome rs, UCaltex" is
" ·hat happe ns to them at the ir
loca l or hi g h._,_·ay serv ice stat ion . Calrex Australia.
O ur re putation is built on a myriad Syd11er, AllStmlia
of indi,·idual acts, ali day, every
<lay . \\'e must !uve peo ple and
technology '-'-·orking together to
gi\'e customers what they want
e ,·ef)' time . \Y/e call it "Caltex
Cares.··
One way we do this is by
17 //3.l l .\/a 11age111et11 Reporr Apri l 1990
of o ur partners hi p.
Yet, I wo uld like to see _IBM
move even closer to Contine nt.
Th is would wo rk to o ur mutual
be nefit. New deve lopme nts and
investm ents in o ur co mp:rny are
sou rces of enric :.:11e nt far IB !vl
itse lf. Fo r example, to study and
develop new domains, which
ne ither of us have e ntered be-
ca use of lack of reso urc~s. pe r-
haps sorne IBM s pecialists cou ld
Mael Barraud, be integ rated into our structure .
General Organiza - This could be as a joint ve nture or
tio11 Ojficer, co mmo n subs idiarv.
Continent. Generally, I be lieve m:vt-and
Cbambourcy,
IBM France, in particular-is on
France
che right track. H0"-'eYe r, l urge
yo u to beco me more vigilant to
reacting fase to che marketplace.
Your success will de rive from
your reactiveness.
building clase associations with
technology suppli ers, such as
IBM. We like working w ith
people w ho share o ur idea ls and
w ho und erstand our impatience
ro impro\'e.
\Ve ha,·e recemly upg rade d our
mainfr::i.me syste m and are stan -
dardizing ou r applic:tti ons on
!Br-1's !atese platforms. \\' ith this
strategy. "·e ca n build arrlica-
ti o ns more qu ick ly a nd orer:lle
Ban-yMwphy. th e m efficie ntly :.incJ reli:1hl\·.
,\fa 11a.~inR Difl'ctor. leavi ng a lot more tim e for .our
staff to \\'Ork on new customer-
oriented a rrlications.
No douht hoth C tltex an<l IB\I
find th eir respecti\·e m:trketplaces
mu ch mort: <lemanding now . But
o ur links :.in.: strong ancJ focuse<l
on the same ohjecti\'e-how to
look after th<: custonH.' r and buil<l
:i successful husiness .
, . ... ~ : -· ··· - . ·:.•... ~ ~-- ~.. . ' ·.
. '

18 IIJ.\I .\/w wgc111e111 l<11porr Apn'f 1990

We're in the Workstation Revolution

George Conrades, IBM Senio r Vice .President, General Manager. US
Marketing & Services, at February·s RI SC System/6000 announcement:

We believe our RISC System/6000 we intend to distinguish ourselves

family fully satisfies customer
wants and nee ds-from its high
performance to its competitive
price ro irs su pport for indusrry
standards.
Throughout its developme nt,
we decided every design point in
che customer's favor. Nothing was
allowed to obscure our business
vision of serving customers with
che bese UNIX-based so lutions in
the industry.
With today's announcement,
in the crmvded, fierce ly competi-
ti ve market place for advanced
workstations . The RISC System/
6000 famih- puts u.~ :,;(!U:trely in
thc.: race fo r le:H.krs hip--w ith
unmatched technology, a new
business initiati,·e :ind a keen
understanding of our customers
and their req uire·me nts.
\Ve ·ve been a po"-·erful force in
the PC revo lution. We intend to
be just as po"-·erful a force in the
workstation revolution.

Too Many Machines Are Failing

William Kress, Plant Manager, Research Triangle Park, Communication
Systems, to development laboratory employees:

Many people say IBM wrote the
book on quality processes. !3 ut
many of us now agree th at we are
overdue fo r a majar renewal of
our commitment to quality. Too
many machines are failing in che
field.
We have a qualiry goa l, a zero-
defects goal, that we don't know
how to get to. It will take a
change of habits, a cultural
change . !3ut th:1t's rhe m:.ignitude
of the change tha(s needed .
Common sense shoul c! tell you
that market-dri,·en quality is O O'.Y
a way of life in IB.\1. \Ve can get
our quality exactly where we
want ir, the n go out and do what
we <lid a few years ago--m:ike
sorne perfect products, bue prod-
uces that a re n·r re le\'ant to che
customer's needs.

Broaden Development Perspective

Geoff Rabinson , Hursley Laboratory Director, in development
management forum:

Understanding the cha nging read ilv lead IO :1 di:-.tortc.:d ,·iew .

e nvironment in which we operare
is best achieved by being im -
mersed in it. The II3M develop-
ment community c:innot be
effecrive unless it has a mu ch
stronger invoh-emenl with ho 1h
customers and compet ition.
113,\1 devdoprnent continues to
!uve a \ 'Cí}' U.S.-centered view of
· the marketpbce. While this is
afeen very appropri:.ice, it can
With more than half of !B.\l's
bu si ness no,,· ouisidL'. 1he L.S.,
and growing faster. ,,·e are in
d:1nger of mi:--sin).: new dc.:H·lop -
ment opponuni1ies. One c:111 cite.:
hoth 1he Far L1sl and Europe ;is
are:is where growing business
an<l competilion are setting
p:itterns for 1he nurketpb<.:e
diffc.:rent from those in thL'. l 1.S.
/11.\f /11/<"nw/ l.<<' U11~1·

Letters to the Editor
Checking Up on a Checklist
As we dríve decision-making down to che
lowest possible leve! and encourage indi -
viduals to become entrepreneurs, it's ab-
solutely essential that everyone under-
stands the comrnny's strategic direclions,
short-term oper:itional needs, crítiCJI
success factors and progress toward their
achievements. Th erefore. the reople
management ch<.:cklist you ran in J:rnuJry
should include preparation for and
running of depanment m eet ings . They
are absolutely key to the success of th e
company.
- Paul Weston , i\"onh Harbour, Uni ced
Kingdom
Although the checklist hits the high spots,
r,;.·o pieces of IBM sofcware provide
similar checkli~t s that are comprehensive
and interface •s ·: ;. ca lendar functions.
Both the IBM Inr ormation Organizer and
the new IBM Current are designed to
equip managers with tools to manage
thei r people responsibi lities efficiently
and effectively. L";ilizing our own
technology, we un spe nd less time w ith
paper and more time with people, our
greatest resou rce .
- Frances Raley, Indianapo lis, Ind.
My experíence w ith "to-do" l ists or other
reminders is thev tend to get lose in ali
th e other paper on my desk. An excellent
altemative is to utilize your PROFS cJlen-
dar. On che first day of each month. I list
ali the development plans, appr.iisa ls,
sa lary increases, etc., due for that month.
Toen. I ·copy" th:it reminder on the 15th
of the month and towards th e end of the
month . I Jlso use the ca lendar to remind
me who's on vacation. in class, etc. The
-1'\OTES :" option allows you to list items
withou t times :md the -co:\F:" opiion
ensures th:it no une else sees confiden tial
enrries . Your rrofile exec ca n be edited
so th:ll \·our olend;ir disrl:lys each time
yo u sign on. This autom:ned -to-do" list
w o n·t get los! in che shuffle .
- E\·eh·n ,\!oore, r\ustin, T<.:x:Js
Org Chart Helpful
Your anides :.1r<.: inter<.:sting, crisp :incl-to
us here :Jt lh<.: !ntern:Jtional Edu c llion
,,,
' don ·c ~t ri,·e for chis goal. ,\·e sl1:.1ll su rely
!Got a Story Idea?
¡Our aim is to help you in your manage-
mem job. And you can help us by
sending us your ideas, comments and
questions to Editor, fB_H Management
Report, 150--06, 44 South Bro:1dway,
' White Plains, N .Y. to6ot or send :1
PROFS note to AR\!YM(STI:PHA..:,l).
Center-usefu l. In the January issue . 1 am
referring especially to che IBM US orpni-
zation chan. which I copied for my secre-
taries. \Y/e are so far away, it is som etimes
difficult to figure out \vhat ch e top looks
like . Also, I co pied the monthly checklist
for managers and slid that in my .. Person -
nel " binder.
- Dominique Pierson, L:i. Hulpe, !Jelgium
Gaining Employee,
Customer Trust
IB.\! middle n1:.1nagers <lea l \vith :.1n in-
creasingly well -informed :ind wd!-
educ:1ted grou·r of employees :.1nd
customers. This pulsan extr:1 burden on
executi\·e man:1gement to be forthright in
explaining its decisions.
we·ve been experimenting with a
more open appro:1ch . \X"hen a wugh
decision is taken. we expbin che usu:1I
benefits :rnd jus1ific:11ion for 1he :1c1ion.
but we :1Iso ack nowledge the polenti:1I
adverse imp:1cts th :11 must be m:1n:1ged .
This approach no t only build s
credibiliiy and tru st. it abo gets the
people coinmiued to hc.:lp mimmize the
downside effects. lt was fore ign 10 our
marketing herilage. but it seems !O he
working.
- Keiih Cowan, Toron10, Can:1da
Message on Quality Hits Target
Jo hn Akers' mess:1ge in J:1nuary on
qu:1lity is so true. lt needs to be repe:ued
over :.1nd ov<.:r agJin in ali of hi s
speeches, messages :tnd so fortlt. Now
\\·e need to t:tkc che :1ppropri:1te anion to
impron: our produns and processes ;11 ali
levds of the bu si ness. Customer s:llisfac-
tion is truly our goal, \\-lt<.:tlter our
customer is cxtcrn:1I or intcrn;il. lf we :di
, lpnl 19<)()
f:til.
- PJul Youn¡!. G:.tithershurg, .\Id .
Readers Like the Basics
The J:1nu:1ry issue ·s interviews with Terry
L1utcnlnch (-H:1,·e High Expectations")
:ind .\like ..\rmstrong ¡ -,-: ·:: '.,<..:ed to .-\dJpt
to hoking Glob:1I i\!Jrke1s··) were
excellent. And you r '"back-to-the-basics"
messages are absolutely r::quired tod:1y.
- Leo Perras, Atl3nt:i. Ga.
ThJnk you for the interview with Terry
Lautenbach on reorle man:.igemen!. l
consider some r:irts of the interYicw
masierpieces of mJn:.igement :id,·ice.
- Lui s Aldomiro Lo¡.p:t,. 1:::.; 11~:,:'.,:
Desktop Publishing Data
l"m intrigued by thc st:Hement th:H you r
publication is designed and produced on ·
:in I13 ,'v! Personal System/2. Plea se give
me specifics as to model. memory,
softw:.ire :.ind pri !lter usec! .
- Hought \Vahl. ;\lilford. Conn.
Editor"s note: IB.\1 ,\1:.i nagement Report is
produced 011 llco /B.\! PS/2 Jfodel 60s, one
1cith 5 m c',¿ahytes of random access
memon·. the other 1l"ilh 1 me¡¿aby1e. Eacb
has a -10-m<~ab¡-te harcl dn·ce. Tex1 is
prcpared 011 Displa111·ri1e 4 and se111 to
!he p_mphic desiRlll'r. m a remole locmion,
lill l'ROFS . .~1 the dl'S1g11 shop, this inp111
is 11sed to set 1/;e 11pe. a)l(J 1be layout is
llChl<'red 011 the l'S/ .!. usin,í!. tbe A ldus
l'a.í!.c.\fal.!er soJÍ11"<1re pacl.:.1_í!_e. 77Jen. a
l.i11111m111c ..500 pnu/11ccs ca mcra - ready
P<l.í!.<'S for the press. "oler days,
<'le. /11 1he
(/f u,11r::.e. u·as
al/ 1he _í!_mphic des~í!_n 1rorl.!
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---·- -- Man:1gement Report

pril 1990

IM Management Report is published by Intern:itional

usiness Machines Corporation, Annonk, New York
)504; John F. Ak e rs, Chairman of the Board. Ir is
~oduced by IBM Corporate Communications. Mary
:e Turner, IBM Director, Communications; Hans J.
,aemer, Director, Corporate Publications and Broad-
.sts; Woody Klein, Executive Editor. !Blvl Manage-
·ent Report is disrributed worldwide to IBM man:igers
ith employees reporting to them.

iitor:
::inMaclay

;sociate Editor:
n Iwata

nior Writer:
1uck Boyer

irrespondents:
hn Back, Far East; Stephen Quigley, Europe

cretary:
!phanie O'Sh:1ughnessy

ldress correspondence to: Editor, IBM Management

port, 44 South Broadway, White Plains, New York
601, or AR.MVM(STEPHANI) , or call (914) 288-5967.

is publication is designed and produced on an IBM

rsonal System/2.

,yright O 1990
:mation:il Business Machines Corporalion

1/J.\I !11tenw/ l'se 011/1•

> ' ..